Many of us may, at some point in our lives, be unable to make decisions for ourselves, perhaps due to an accident, stroke or dementia, or will know someone else in the same position.

Since 1985, it has been possible for people to resolve the resulting difficulties of dealing with their financial affairs by setting up an Enduring Power of Attorney (EPA). This appoints someone else - their attorney - to make financial decisions on their behalf if they lose their mental capacity.

On 1 October 2007, however, the law changed with the implementation of the Mental Capacity Act 2005, making it no longer possible to create a new EPA. Existing EPAs (both those that have already been registered with the Court of Protection and those that are currently unregistered but completed) remain valid.

The main aim of the Mental Capacity Act 2005 is to give people greater protection when they lose their mental faculties. Under the terms of the Act, attorneys must act in the person's best interests and support them as far as possible in making their own decisions.

EPAs have been replaced by Lasting Powers of Attorney (LPAs). There are two types of LPA - a property and financial affairs LPA, which is in fact similar to an EPA, and a personal welfare LPA.

"If a person loses capacity without having an EPA or an LPA in place, there is no one appointed to make financial decisions on that person's behalf."

Why create an LPA?

If a person loses capacity without having an EPA or an LPA in place, there is no one appointed to make financial decisions on that person's behalf. In these circumstances the Court of Protection must be asked to either make the necessary decisions itself or to appoint a 'deputy' to make those decisions. The Court will choose a deputy based on the skills required and will decide whether the proposed deputy is reliable and trustworthy. The Court might appoint a family member, but if the person's financial affairs are complicated the Court might choose a professional with an appropriate level of skill and competence to carry out the necessary tasks. This will be more expensive than creating an LPA as there will be costs involved in the Court application and then the deputy's fees for acting will have to be paid from the assets. As you will imagine, involving the Court is also likely to give rise to delay.

Welfare, not just money

An EPA could only be made in relation to financial affairs whereas a personal welfare LPA will allow someone else to make decisions about a person's day-to-day care. That could involve decisions as to where they should live, who they should see and whether they should receive medical treatment. A person can give their attorney guidance in the LPA which gives them more control over how they will be looked after in circumstances where they are no longer able to decide for themselves.

Other differences

A person can appoint one, two or even more attorneys to act 'jointly' (i.e. together), 'jointly and severally' (i.e. together or independently) or jointly in respect of some matters and jointly and severally in respect of others. This offers more flexibility than the previous system.

The new system also includes more safeguards in order to provide more protection against abuse. For instance, EPAs can be used before someone loses their mental capacity. They only have to be registered with the Court when the donor is, or is becoming, mentally incapable of handling their own affairs. The law now states that both types of LPA will have to be registered with the Public Guardian before they can be used at all, whether before or after the donor's loss of capacity.

In addition, personal welfare LPAs will only be operable if the donor is actually incapable of making those decisions himself.

"The new system also includes more safeguards in order to provide more protection against abuse. For instance, EPAs can be used before someone loses their mental capacity. The law now states that both types of LPA will have to be registered with the Public Guardian before they can be used at all, whether before or after the donor's loss of capacity."

A further difference and added protection is that an LPA must include a certificate (by one of the people listed in the form) confirming that, in their opinion, the donor understands the purpose of the LPA, the scope of the power granted under it and that the donor has not been put under any undue pressure to create the LPA. There are certain categories of people who cannot be a certificate provider, including the attorney or a member of the donor's or attorney's family.

Creating LPAs

An LPA must be made using the prescribed forms, which are longer and more complicated than the old EPA forms. Seeking advice and help from your solicitor is recommended.

It is important to give careful consideration to who would be an appropriate attorney. Although a spouse is the obvious choice, thought will need to be given to the assets involved and whether he or she has the necessary expertise.

Once a person has lost capacity, they cannot make another LPA so it is important to consider these issues when creating an LPA and, if appropriate, to take legal advice.

By Kellie Jones and Amanda Edward, solicitors at Boodle Hatfield advising high net worth individuals and families. They can be reached by email: kjones@boodlehatfield.com and aedwards@boodlehatfield.com

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